Tesoro’s rail project feels heat

SAN ANTONIO — More than a year ago, locally based refiner Tesoro Corp. announced a plan to deliver low-cost crude oil to refineries on the West Coast.

The proposal calls for the construction of a crude-by-rail terminal to move plentiful and low-cost Bakken crude from North Dakota to the Port of Vancouver USA in Washington state. The crude would be transported by ship or barge to Tesoro’s plants in California and to other West Coast refining centers.

Analysts have said that the project would help Tesoro’s bottom line and margins. Construction of the terminal — to be the largest in the Northwest — was to have started at an unspecified time this year.

But the project, already delayed once, faces mounting opposition.

On Tuesday, the City Council of Vancouver, Washington, voted to oppose the project after a seven-hour public meeting.

While some residents spoke in favor of the project, more spoke against it.

Many opponents of the rail project said they were concerned about the safety of crude transported by rail, citing recent accidents and derailments in the United States and Canada.

Proponents of the project cited the jobs it would bring to the region, as Tesoro and the port have said the project would provide 80 to 120 full-time jobs.

In addition, employees of Tesoro’s joint venture partner, Savage Cos. of Utah, told the City Council that the company values safety and has invested significant sums in training them. As Tesoro’s joint-venture partner, Savage will manage the design, construction and operation of the facility.

After the City Council’s vote to oppose the terminal, Tesoro said in a statement the council’s actions were premature. The city’s stance “makes a predetermination without having all of the facts and analysis that are required and that will be provided through the prescribed permitting process.”

The evaluation of the port now rests with the Washington agency that evaluates major energy facilities in the state.

Tesoro said it is “confident” that the state’s review and permitting process review will be “robust” and “show the terminal will be designed, constructed and operated in the most safe and environmentally responsible manner.”

The Vancouver council’s vote to oppose the project also calls for the Port of Vancouver to terminate its lease with Tesoro and Savage.

Port CEO Todd Coleman said the council’s action has no legal standing.

“They can obviously make the request,” Coleman said, “but there is no requirement for us to take any action. The (lease) agreement stands.”

When Tesoro provided an update on the project on May 1, CEO Greg Goff said construction would be delayed for some months while the Washington agency completes its environmental review. Goff said then that the project’s cost would increase to between $150 million and $190 million, up from an earlier estimate of $100 million.

Lehman Holder, chairman of the Sierra Club’s group in Vancouver, said the City Council’s vote has galvanized the project’s opponents.

“It would only take one accident in the city of Vancouver where the railroad comes into town, and if that happened, it would be catastrophic,” he said.

Holder, a native Texan, said he understands that oil “is a big thing in Texas. But up here, there’s a totally different way of looking at things.

“The environmental ethic here is much, much stronger than in Texas,” he said. “We all drive cars, it’s true, but when it comes to putting people at risk because of the horrible safety record of (crude) trains, safety and quality of life is more important.”

Crude oil doesn’t move through the Port of Vancouver now, but the port does handle refined products, including diesel, jet fuel and gasoline. (Crude oil, however, does move by train through Vancouver, three times a day on a BNSF Railroad Co. line.)

In February, Tesoro emphasized improvements to its rail safety plan, saying that it had started to replace its older rail cars used to transport crude oil with those of safer design.

The company said at the time that its rail-car fleet would consist entirely of the safer cars by mid-year, and the safer tankers would make “the vast majority of crude-oil deliveries into Tesoro’s facilities.”

Tesoro said it was “proactively” making the change, adopting designs for newer rail cars used to transport crude that were a recommended standard starting in October 2011. The company added that the upgrades to its rail-car fleet would be completed before it starts construction on the Port of Vancouver terminal.

Charles Clowdis Jr., managing director of global trade and transportation at IHS Economics, a part of the analytics and consulting firm IHS Inc., said he believes Tesoro “will do everything to ensure safety that they can possibly do. They will use state-of-the-art tank cars, and take as many safety precautions as can be taken.”

Even so, while hundreds of thousands of crude tankers deliver oil safely, “accidents are inevitable,” Clowdis said. “It’s a concern.”

As production of oil has soared in the nation, so has the transport of crude oil. The nation’s railroads carried about 400,000 car loads of crude oil in 2013, up from almost 234,000 carloads in 2012, according to the Association of American Railroads.

Port CEO Coleman said he’s been told that the state agency could take three to five months to review the Tesoro project. Then there will be a formal process for interested parties to voice their views.

Once the agency issues a formal report, it will make a recommendation to Washington Gov. Jay Inslee, who will make the final decision on whether the project will go forward.

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